Recalling his recent-years predictions that U.S. cotton consumption could drop below 6 million bales and that China’s aggressive cotton consumption policies would affect all cotton-consuming countries, William B. Dunavant Jr. says the prognostications “unfortunately have been proven correct – and we have not even reached 2005, when all quotas will be eliminated. What will happen then? Or is it happening now?”
China will continue to take markets from other developed countries, the Memphis cotton merchant said at the annual Beltwide Cotton Conferences at San Antonio. “They are certainly hammering Japan, Taiwan, Hong Kong, Indonesia, Thailand, and Europe. They have excellent technology, and it improves every year.”
One modern textile mill in China consumes about 2.3 million bales per year, and they are trying to increase that number, Dunavant said. “The mill produces very high quality yarns, and buys the best cotton produced in the world. It basically sells all of its yarns in the world market, and does very well.”
Mexico, which bought 2.22 million bales of U.S. cotton last year, is expected to purchase only 1.625 million this year, he said. “China is also putting pressure on Mexico, and that’s why their purchases of U.S. cotton will be smaller this season.”
Five years ago, Dunavant said, Japan and Korea combined consumed 2.7 million bales annually. “This season, their combined consumption will be down over 400,000 bales compared to 5 years ago. They, and other traditional buyers for U.S. cotton, have had their consumption damaged by China – just like the U.S. textile industry.
“As I look around the world, the numbers say we’re going to have a tight world supply in the spring for basically all qualities, but especially 21 and 31 grade, 34 and longer staple.”
Australia, hit hard last year by drought, “is still struggling,” he said, and will produce 1.3 to 1.5 million bales this season, depending on moisture. “But we are projecting they will be back to producing 3 million bales next season, as they begin to build water supplies.”
Turkey, which bought 1.53 million bales last year, is projected to purchase 1.53 million this season, Dunavant said, and will “become a much more aggressive buyer in the weeks ahead.” Pakistan, with a very poor crop, will need to import cotton to balance supplies, he said; “I project they will buy 1.45 million bales in the world market.” India’s cotton imports will be off, to only 850,000 bales, because they had a good crop.”
Dunavant analysts are projecting the final U.S. 2003 crop at 18.275 million bales and consumption at 6.2 million bales, with exports in a range of 13.450 to 14.2 million bales.
“I lean to a higher number than 13.450, only because of China and what we see happening there.”
U.S. carryover Aug. 1 was 5.4 million bales and his forecast is that 2004 carryover will be 3.4 to 4.2 million bales. “I project this wide range because none of us knows how aggressive China will be over the next seven months. They will be a major player with the U.S., and their carryover stocks will be entirely too low for the volume of their consumption.”
Dunavant says the U.S. “is definitely on target to break our record for shipments and registered sales,” with 9.3 million bales registered for export through Jan. 1.
World numbers “look even more friendly for the balance of this marketing year. We started this season with a world carryover of 37 million bales, and we think that will drop to 33.5 million Aug. 1, 2004, based on a projected world crop of 93.1 million bales this season and consumption of 96.7 million bales. This is a major drawdown of world stocks.”
Continuing declines in the U.S. textile industry will push domestic consumption lower, Dunavant said.
“A year ago at this meeting, I projected U.S. cotton consumption of 7.5 million bales and trending lower. This season, we think domestic consumption will be down to 6.2 million bales. The potential for a number of next season slightly below 6 million bales can be reality.”
His year-ago forecast for U.S. exports turned out brighter, Dunavant said. “We were projecting exports of 10.8 million bales, and they were 11.9 million – a big number. The U.S. is rapidly becoming the major exporter of cotton, which is extremely necessary for the future of U.S. cotton. We project today we will export over twice the amount of cotton that we will consume domestically. It’s hard for me to look back 5 years ago and see the tremendous change that has occurred in our industry.”